BHP in Talks with Canada’s Harry Winston

Helen Thomas and Anousha Sakoui

Monday, 6 Aug 2012 | 10:39 PM ETFinancial Times

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BHP Billiton is in protracted talks with Harry Winston, the Canadian mining and retail group, about a sale of its diamond business but could yet opt to keep the unit as discussions drag on with the sole remaining bidder.

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Harry Winston has secured bank financing for a possible deal, according to people familiar with the matter, and is continuing negotiations with BHP to buy the Ekati mine in Canada. But the process, originally slated to conclude by the middle of this year, is moving more slowly than expected and could fail to result in a deal.

Rio Tinto’s decision in March to assess a sale or float of its diamond business has proved a complicating factor, said the people. Harry Winston owns a 40 per cent stake in Diavik, Rio’s mine located in the same region as Ekati, and is exploring whether to exercise its right of first refusal on the remaining 60 percent.

Toronto-listed Harry Winston, which also owns diamond jewellery and watch stores, has previously said it would like to acquire further mining assets, as retailers and luxury brands seek to secure supplies of precious stones.

But the company, which has a market value of about C$1.1 billion ($1.1 billion), is unlikely to have the means for both deals, according to industry analysts and advisers.

If the group decides to consolidate its interest in Diavik, it could prove a headache for Rio. The Canadian mine is a key asset in Rio’s diamond business and carving it out could make a flotation or sale more challenging.

BHP last November said it would explore selling its diamond operations, which analysts thought could be worth $750 million to $1.25 billion. But the business could fetch well below that given the market volatility and deterioration in the global economy this year.

Industry experts argue that the outlook for the diamond market is favourable, with no sizeable discoveries in recent years and fast-growing demand from China and other emerging markets.

But BHP and Rio have struggled to expand their share of the diamond market and are pruning their businesses to focus on their highest-quality assets.

BHP and Harry Winston declined to comment. BHP has previously said it would consider keeping Ekati if a suitable buyer could not be found. The miner excluded some possible bidders from the process, on concerns that they would not be seen as credible or environmentally sound operators of the mine.

Robert Gannicott, Harry Winston’s chief executive, said last year that Ekati was of “some interest” to the company but noted its limited remaining mine life and the potential future costs of restoring the area to its natural state.

Other bidders for the BHP mine have now distanced themselves from the process. KKR and Apollo, the private equity groups, struggled to get comfortable with the investment needed to extend Ekati’s mine life, according to people familiar with the matter.